Understanding Your Homeowners Insurance Coverage

By Compuquotes Team on March 27th, 2008

Buying Homeowners insurance can be difficult if you're struggling to understand the language and terminology. Just what exactly is liability coverage? What's a deductible? Should you worry if your insurance agent tells you that there's an exclusionary clause for your home business equipment? Understanding the lingo can help you get the insurance coverage you need without paying extra premiums for coverage that is useless to you. Here's a quick glossary to help you understand your insurance agent when he seems to be speaking in a foreign language.

Liability Coverage There are two basic types of Homeowners insurance. Liability coverage pays for damages accidentally caused to others by you, your family, pets or property. This is the coverage that will take effect if someone falls in your home or has their car damaged when a roof shingle comes loose and lands on their hood. This is sometimes referred to as injury to others', and it covers you anywhere in the world, not just on your own property.

Medical Payments to Others Different from liability coverage, MPO coverage pays medical expenses for injuries that occur on your property whether or not you are liable for those injuries legally. This coverage will not pay medical expenses for injuries to your family or other residents on your property.

Actual Cash Value This term usually refers to belongings in your home. Generally, if belongings in your home are damaged by fire, storm, vandalism, theft or any other covered occurrence, the insurance company will pay out the actual cash value' of the item rather than its replacement cost. If an electrical fire destroys the refrigerator for which you paid $800 ten years ago, you may only get $100 for it when depreciation and wear is deducted from its value.

Replacement Cost Value A popular alternative to Actual Cash Value coverage is Replacement Cost Value. You'll pay a little extra in premiums, but if your refrigerator is damaged in a covered event, you'll be able to replace it with a similar model at today's prices.

Fair Rental Value If damage from a covered event makes your property uninhabitable for a period of time, your insurance policy will pay you fair rental value' or additional living expenses' so that you can pay for a rental or hotel room until the damage is repaired, within the limits set out in your policy.

Business Property Most Homeowners insurance will cover the cost of replacing damaged or stolen equipment or property used for business up to $2,500. If you keep inventory for your home business or business equipment at home, you'd be wise to check into a rider' or floating coverage' for any business equipment or property that is regularly kept in your home.

Rider A clause or addition to your Homeowners insurance that alters its terms or conditions. Riders are often used to insure specific items with value above that of the limit on your Homeowners standard policy. You may get a rider to insure a $5,000 mink coat, for instance, to be sure that its loss will be covered.

Deductible The amount you'll have to pay out of pocket before your insurance coverage kicks in. For instance, if you have a medical costs coverage with a deductible of $500, and the costs for someone injured on your property comes to $850, your insurance company will pay $350.